10 minute read
FINANCE
2023 Alaska Economic Forecast
Ready for recovery, dragged by workforce woes
As Alaska continues climbing out from the COVID-19 pandemic, the state’s economy remains among the nation’s lowest performing, yet other indicators suggest potential for growth and recovery in 2023 and beyond.
While nearly half of other states have rebounded, Alaska is still reaching for pre-pandemic job levels, according to the October 2022 Alaska Economic Trends report published by the Alaska State Department of Labor and Workforce Development. Furthermore, a study published in November 2022 by the Alaska Center for Economic Development at UAA made a case that, for the last seven years, Alaska’s economy ranked “at or near the bottom” in key economic health measures compared to its national counterparts.
A major reason Alaska has continued to struggle is that, before the pandemic hit, the state was already in recovery mode, having barely come out of a three-to-four-year recession, says Neal Fried, an economist with the State of Alaska.
“Pre-COVID, the American economy was red hot, and had a lot of energy or momentum, and nationally that momentum has sort of picked up again, in a big way,” Fried says. “We didn’t have any momentum when we went into COVID, and we still don’t. We’re lagging. The last time we looked, as far as recovery back to even pre-COVID days, we’re 47th in the country.”
This has happened before, Fried says: Alaska’s economy suffered and the state lost workforce numbers “when the American economy was red hot and ours wasn’t. It’s not necessarily counter cyclical, but it does make things here slower.”
By Katie Pesznecker
Where Are the Workers?
Many economic watchdogs point to workforce woes as a foundational problem to turning things around in Alaska. With “help wanted” signs peppering shop windows and unemployment numbers among the lowest nationally, Alaskans continue to ponder: where are the potential workers?
A primary misconception rooted in the pandemic’s early days was that people were simply choosing not to work. Critics painted pictures of individuals skipping job interviews for video games and stimulus checks.
That’s simply not true, Fried says. What is true is that fewer people are moving to Alaska, shrinking the labor pool.
“It’s not that everyone’s getting in their U-Hauls and heading down the highway,” Fried says. “What’s really happened—and this has happened before, just not to the extreme—is because the national economy is doing so well for the last decade and even today, people don’t move. They’re going to stay close to where they are. As long as that condition exists, it’s
going to be more difficult for Alaska to attract workers.”
Another factor, according to Bill Popp, president and CEO of the Anchorage Economic Development Corporation (AEDC), is that younger workers are leaving, and they aren’t coming back.
Anchorage has seen a net outmigration trend for about eight years, but it has worsened since COVID-19, and that’s a problem for local employers, Popp says.
“We’re seeing a significant loss of key portions of our population related to workforce,” he says. “Our workforce decline over the last several years is now totaling over 15,000 lost workingage adults from the Anchorage population. That’s a pretty significant impact, and we’re seeing it manifest itself in extremely low unemployment rates in Anchorage.”
US Census Bureau data says about one-third of Anchorage’s 16- to 26-year-old demographic had left the city; only a fraction remained in Alaska, and the remainder relocated Outside. These younger Alaskans are leaving and aren’t moving back, just as Baby Boomer-generation workers are entering retirement, Popp says.
“It’s a significant loss of our most experienced high-wage earners in the economy,” Popp says. “So we have a lack of people at the entry level, a lack of people in the mid-career level, and a significant lack at the upper tier of our workforce, and it’s becoming a real challenge for our city.”
August and September 2022 unemployment for the Anchorage area was 2.9 percent, Popp says. That pencils out to about 4,400 people in the Anchorage area looking for work; meanwhile, AEDC estimates there are three times as many jobs available.
The outward population flow is compounded by a shortage of inward migration. “Alaska is very dependent on people moving here,” Fried says. “We have more turnover than any other state in the United States, so as long as the American economy outperforms us, it’s going to be hard for us to turn that population picture around.”
But it doesn’t have to be that way. “The idea young people can’t find opportunities here is just a bunch of baloney,” Fried adds. “It’s simply not true.”
Alaska is adding jobs, but not as quickly as the rest of the country on average.
The most recent state data shows 4 percent year-over-year private sector job growth statewide and 3 percent growth when public sector jobs are included. This remains lower than pre-pandemic growth rates, says Mark Edwards, Northrim Bank’s chief credit officer and bank economist.
“We’re not quite back up to the same level of employees; we’re about 10,600 jobs short from where we were,” Edwards says. “We’ve recovered most of the pandemic lows, but not all of them.”
COVID-19 wiped out nearly 26,270 jobs statewide in 2020. According to the October 2022 Alaska Economic Trends report, employment is up significantly from pandemic lows but still 3.9 percent below August 2019. In comparison, US employment was 1 percent above its 2019 level.
But adding jobs is not in itself a solution, Edwards says. The decrease in rate of young people entering the workforce along with the aging population and retirements are compounded by fewer women in the workforce, too, and supply chain issues are further complicating economic growth.
“Overall, the economy is underperforming its full potential,” Edwards says. “Supply is not keeping up with demand. There is unmet demand because of a lack of supply of goods and services. With less workers, there are less services being provided than possible. With less goods crossing the borders due to bottlenecks in the supply chain, there is a reduction in the total amount of commercial activity.” Those factors prevent the economy from meeting its full potential.
Another limiting factor, Edwards notes, is pandemic rescue funds, which pumped an extra $6 trillion into the US economy. “That led to an extremely large expansion of the money supply, and that’s always inflationary unless the economy could grow at the same rate as the money supply, and it couldn’t,” Edwards says. “This means the existing currency becomes less valuable when it’s diluted by a lot of new money.”
In these conditions there will inevitably be winners and losers, Edwards says. Businesses that can get the supplies they need and are able to retain employees will do well because of excess cash in the market, “but if you have supply or labor shortages or are having to pay more for goods or employees, inflation can really have a negative effect on your business,” he adds.
In this environment, businesses need a higher rate of return on investment to counterbalance the cost of borrowing, which means less risks are generally taken as projects are vetted at a higher hurdle rate, which can be “a headwind to the economy overall,” Edwards says.
Bill Popp President & CEO Anchorage Economic Development Corporation
Where Does Alaska Go from Here?
not apply to the current struggle.
“This is not Alaska of the ‘60s, ‘70s, ‘80s, and maybe early ‘90s,” Fried says. “We do pay a wage premium here, but that premium is way smaller than it used to be. The ‘let’s go to Alaska to make a lot of money’ thing, that’s kind of gone away.”
Wage erosion means Alaskan employers must get more creative to compete for workers, Popp says. This should include looking at housing solutions, childcare affordability and availability, investing in a healthy school system, and more. “We’re going to need to start thinking about how we compete as a state and specifically how Anchorage configures itself to compete against hundreds of other cities across the United States that are out there aggressively competing for workforce,” says Popp.
From Gloom to Boom
When gauging current and forwardgoing economic health, Northrim’s Edwards considers delinquency rates from the Mortgage Bankers Association survey. Covering about 90,000 Alaskan-held mortgages, the rate tracks clients thirty days late or more on mortgage payments.
In 3rd Quarter 2022, the US delinquency rate was 3.6 percent compared to Anchorage’s 2.6 percent.
“What this shows me is Alaska is healthy,” Edwards says. “People are able to stick in their homes. If you don’t have foreclosures, you don’t have a supply of distressed homes, and that’s good for the housing market.”
Edwards was also encouraged by the Alaska Department of Revenue sources book, which predicted oil production would increase from 491,000 barrels a day at present to 585,000 in 2031.
“It’s been a while since we’ve seen the state forecasting increases,” Edwards says, noting the planned Willow and Pikka developments, their anticipated production levels, and the associated jobs that would support both development and operations phases.
Oil and gas jobs are generally the highest-paid jobs in Alaska’s economy, “and these multibillion investments are really stimulative to all the service-providing jobs in the state,” Edwards says. “Alaska can do well to provide some stability in these markets, and it might even help incentivize natural gas exports or other industries we’ve been talking about for quite a while. It might actually make Alaska very attractive to certain countries that want to guarantee their supplies of energy.”
Overall, the October 2022 Alaska Economic Trends report predicts a slow recovery for oil and gas jobs. From peak employment in 2015 through 2021, that industry lost 8,406 jobs in Alaska. By 2030, the state’s report predicts total job numbers will “settle slightly above pre-pandemic job counts.” During the same period, the report predicted mining will add about 600 jobs, mostly through ongoing exploration and existing projects.
Alaska has many opportunities in resource-based industries—in timber, too, Edwards says.
“We just haven’t been able to guarantee some of the access to supply,” he says. “The story of Alaska has always been access to natural resources, not necessarily the abundance of them. It’s more a question of legal access and environmental issues. In a challenging global economy, I would say that helps tip the balance in Alaska’s favor to help approve those types of projects.”
Other opportunities in Alaska’s economic future are the stable fishing industry, federal military investment, the ongoing and promising rebound of the tourism industry, and transportation.
While Ted Stevens Anchorage International Airport thrived with cargo activity during the pandemic, a slowdown in US purchasing from Asian markets combined with other supply chain woes are complicating factors, Popp says.
“But we think, net net, we will see reasonable growth in air cargo, and that will grow jobs in airport operations,” Popp says. Businesses counting on air cargo growth are already investing in more infrastructure at the airport.
With job growth predicted across many markets, economic watchdogs are mindful of the barriers. In general, the national economy has outperformed Alaska’s for more than a decade, and even as growth is predicted, potential is tempered by labor market shortages.
“The American economy was burning hot prior to 2019, got slowed down because of COVID, and recovered pretty nicely and pretty quickly,” Fried says. “The country has fully recovered. There are now more jobs in the United States than there have been in its history. There are more people employed than ever before in America. That is not true in Alaska.”
Mark Edwards EVP/Chief Credit Officer/Bank Economist Northrim Bank
